This post is by Jason Lemkin from SaaStr
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Fastly isn’t quite as well known as the others in this 5 Interesting Learnings Series — Zoom, Slack, PagerDuty, etc. But it has some very interesting learnings for founders. Especially on how bigger deal sizes can work with free, freemium, self-service, etc. It’s also a great one to learn from, at $200m+ ARR ($45.5m GAAP revenue in Q1 ’19) because it’s in a space filled with strong competitors. 5+ learnings for founders:
- Developers control a lot of spend today. A lot of enterprise-grade spend. We all know this from AWS on down, but Fastly is a visceral reminder. It’s an almost 100% enterprise play — they have 227 customers spending over $100k a year, comprising 84% of their revenues.
- Revenue doesn’t all have to be recurring, folks. We certainly have learned this from Twilio and others, but Fastly initially charges based on gigabytes and in many cases with minimum commits. Customers than typically move to more fixed contracts once they exceed minimum commits.
- Free and freemium and self-service can work in $100k+ deals. Yes, Fastly is a developer-focused platform with $100k+ price points. But customers can start for free and then transition to a credit-card with just a $50 monthly minimum fee. Make it easy, folks!
- 85% of Fastly’s revenue comes from direct selling and marketing. Even developer-focused products don’t sell themselves, folks. Especially for $100k+ deals.
- 130%+ revenue retention. One consistent theme for every B2B/B2D company we’ve profiled here about to IPO, or that has recently IPO, is they all have outstanding revenue retention — even ones selling to SMBs like Zoom and Pagerduty. Fastly is no exception, with 130%+ revenue retention for the past 3 years. The lesson? Aim higher here.
- 45% of Fastly’s customers are outside the U.S. We’ve seen this percentage vary wildly across the 5 Interesting Learning companies. Ringcentral was very slow to go global, while Fastly had 40% of its revenue from international even in 2017.
- Just 58 sales professionals (vs 151 in R&D/engineering). Yes, just 58 selling these $100k+ deals. How many do you really need? If Fastly grows say 35% this year, that’s +$70m in bookings, or ~$1.25m per rep (very roughly). That’s high, but doable in the enterprise if you are super efficient or the deal size is pretty high.
- 34% of engineering team in SF. Rest outside of it. This sounds like a sane ratio for a tech company with an HQ in SF in 2019-2020.